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Decomposing the U.S. Great Depression: How important were loan supply shocks?

Max Breitenlechner, Gabriel P. Mathy and Johann Scharler

Explorations in Economic History, 2021, vol. 79, issue C

Abstract: We measure the contributions of loan supply shocks and other macroeconomic shocks to U.S. output dynamics during the Great Depression. Using structural vector autoregressions, we impose sign restrictions to identify shocks. We find that loan supply shocks contributed negatively to output growth between 1931 and 1933, at the same time as the U.S. experienced several waves of banking crises. Thus, our results support the view that disruptions in credit availability contributed to the depth and length of the Great Depression. We also find that adverse aggregate demand and monetary policy shocks were important factors in the downturn.

Keywords: Great Depression; Loan supply shocks; Structural vector autoregression; Sign restrictions; Historical decomposition (search for similar items in EconPapers)
JEL-codes: C32 E32 E44 N12 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:exehis:v:79:y:2021:i:c:s0014498320300814

DOI: 10.1016/j.eeh.2020.101379

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